There are an amazing array of different factors involved when purchasing a business. This is particularly accurate when you’re pursuing negotiations to own a business in the retail environment. You should always ensure that you don’t leave anything unturned so you can provide yourself with the very best possible shot at achieving your dreams in this highly competitive business arena.
So, where should you begin? You have to learn what to look for, and develop an excellent understanding of the hurdles you’ll need to deal with in order to drive a retail business up to its ideal performance threshold. It is vitally important to understand why some businesses succeed and some businesses fail.
Successful businesses share many common factors – crucial components, if you will – and one of the first things you should do is to assess whether the entity you are considering has these factors, or may be modified accordingly.
When you own a business by yourself, you’ll require quite a bit of professional advice and assistance, and this also applies when you’re involved in negotiations to purchase a business too. Search for professionals who have a significant amount of experience in your specific niche and area of the retail business arena. With regard to brokers and intermediaries, don’t ever forget that the business broker formally represents the seller and has a role to play – you should always remember where their loyalty resides. Always strive to have an excellent relationship with the seller, as they will be crucial in the post contract phase, and you also endeavour to develop a professional relationship with the broker while involved in any negotiations as well.
When you’re actively going through a list of businesses for sale, ensure that you’ve categorized the essential criteria. There are maybe as many as 70 key areas that you need to cover and when you scour the listings make sure that you look for all of these elements, good or bad. Extra care at this stage will whittle your list down to a manageable number.
When you have moved to the actual discussion stage, arm yourself with a list of critical questions to ask the seller. You have to really focus and search for important indicators. Often, you can get a great insight into their background by couching your questions in a particular way. You should always ensure that when you’ve complete this stage you’ve acquired a solid understanding of the business.
Financials are often very difficult to understand, especially for a layman. This is where your independent accountants and advisers come in and help you to understand the numbers. There are a variety of things to look for and quite a few pitfalls to stay clear of, at this phase. Know how to analyze the figures and draw your conclusions accordingly.
Whilst it is important to know how to value a business and you should use proven and tested formulae, you should make sure that you bring in your advisers at every stage to help you understand this process. You definitely don’t want to pay too much when you buy business assets and goodwill. In some instances it just doesn’t make sense to utilize a strict formula to value a business, which might or might not rely on quite a bit of supposed “goodwill”, and it might be necessary to put together an earnout formula to assist you in such a case. If you do decide to buy a retail business based on your findings to this point, you will also need to make sure that you have covered all the financing elements and it is important to try and get the seller involved at this stage. This will inevitably focus the attention of the seller, as he or she will be involved with you for the forseeable future and it is in their best interests to make sure that they are also structuring a great deal.
When you come to the formalities of closing a deal, there are of course numerous legal and documentary issues to address. As you look forward, make sure that you have a very clear plan to help you through the transition, and on into the future. This is a whole new topic in itself, but you do need to make sure that the smooth running of the business suffers the least disruption, and that you do not “spook” the customers!
Richard Parker is the President and founder of the prestigious Diomo Corporation – The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream of buying a business.